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  • Writer's pictureThe San Juan Daily Star

PREPA bankruptcy mediators said to be hiring Moelis & Co. as financial adviser

By The Star Staff

The Unsecured Creditors Committee (UCC) asked the Title III court on Wednesday to allow it to retain the firm London Economics International LLC (LEI) as part of the mediation process to negotiate a new debt adjustment plan for the Puerto Rico Electric Power Authority (PREPA) upon learning that mediators will hire their own financial adviser.

The UCC says it wants to retain LEI because it is anticipated that the mediation team will hire the firm Moelis & Co., a global independent investment bank, to provide advice. PREPA stakeholders are in mediation to negotiate a new debt deal after the one negotiated in 2019 was canceled.

“If retained, LEI will, among other things, interact with Moelis as well as the advisors of other Mediation Parties with respect to key issues, including the amount of PREPA’s sustainable debt burden,” the UCC said in a motion.

The request comes after several organizations have called upon the Financial Oversight and Management Board to cancel all of PREPA’s estimated $9 billion debt or substantially lower it as part of its bankruptcy process arguing that repaying the debt is unsustainable and will hike power rates. UCC lawyer Luc Despins said the request was appropriate in light of the termination of the restructuring support agreement, which effectively moots the 2019 bankruptcy motion. The request is also justified, the attorney pointed out, by the court’s order appointing the mediation team and directing mediation regarding the PREPA restructuring, as well as the anticipated application of the mediation team seeking to retain Moelis as its financial advisory firm.

In 2020, LEI authored a report on PREPA that noted the difficult financial and operational situation at PREPA.

“As of the last audited financial statement available as of the end of 2019, PREPA had amassed a debt of $15.6 billion while its assets were valued at only $9.6 billion,” LEI noted at the time regarding the prior debt settlement. “In an attempt to eradicate this debt, PREPA has proposed a non-bypassable charge to be added to all consumers’ bills, known as the ‘Transition Charge,’ which would be shouldered by PREPA’s customers for the next 47 years. This fee is proposed to start at 2.77 cents/kWh [kilowatt-hour] before ultimately increasing by over 60% – a fee which may prove too much for some consumers in a region already battling with significant rates.”

Despins said it is important for the UCC to have its own financial adviser due to the financial questions to be raised during the mediation – particularly given that the mediation is to conclude by June 1, with the possibility of a one-month extension to July 1.

“Moreover, absent the relief requested in this Urgent Motion, the Application would not be heard until the next omnibus hearing on May 18, 2022, until which LEI would not know whether its retention is approved, thus putting at risk their compensation for any work performed in the interim,” Despins said. “Given the time-sensitive nature of the relief sought, the Committee requests that the deadline to object to the Application be set for Monday, May 2, 2022.”

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